Insolvency & Restructuring News

Academic Forum 2014 - a round up of the day

09/04/14

On a sunny Friday in Oxford, some 65 delegates met for this year's annual Academic Forum. Our speakers were drawn from academics, the judiciary, investors and practitioners. Professor Sarah Worthington stressed in her opening words how much value the academic community places on the dialogue which the Academic Forum promotes.

Lord Justice Michael Briggs opened with a fascinating presentation on the Supreme Court's decision in Nortel/Lehman (which had overruled Sir Michael's decision at first instance). Sir Michael pursued the ramifications of Lord Neuberger's assertion that it would be "dangerous to try and suggest a universally applicable formula" to the issue of whether a given statutory liability arising after an insolvency event would be a debt falling within r 13.12 (1)(b ). From this it followed that, whilst the Supreme Court's decision has provided widely welcome certainty in relation to liability under the FSD regime, the position as regards other types of statutory liability remains open to debate. In particular, absent legislative clarification, it remains unclear how the test set out in Lord Neuberger's judgment would apply to environmental liabilities, corporation tax on profits, and rates. Sir Michael welcomed academic contributions on these particular problems.

This was followed by the first of our panel sessions, "Restructuring: Current Issues and Lessons Learned", chaired by Professor Olivaras- Carminal of Queen Mary, University of London, which brought together Simon Baskerville of Ashurst, Justin Bickle of Oaktree Capital Management and Sarah Paterson of LSE and of Slaughter and May to discuss current bond market themes (against a background of a record high European high yield market) and trends in 2013/2014 restructurings. Simon Baskerville highlighted the increasing, and increasingly commoditised, sales of debt portfolios to funds, and the corresponding lending by banks to those funds, as well as the move in the mid-market from "traditional" senior/mezzanine lending to new "unitranche", where investment and distressed funds are replacing the banks as main lenders. Justin Bickle gave the investor's perspective, noting the significant liquidity in the market, with distressed fund investors offering corporates the opportunity to refinance bank debt in its entirety. Justin also noted how significant aspects of the US lending market (which the UK is bound to follow) are harking back to pre-credit crunch days: high leverage multiples and "cov lite" deals suggest that the lessons of Lehman may not have been learned (or are being forgotten). The panel then took delegates through "before and after" case studies of the Truvo and Wind Hellas II restructurings, with Sarah Paterson emphasising how crucial the intercreditor arrangements, particularly control over security and obligor release mechanisms, are in the restructuring process. The panel concluded that the combination of changes in the traditional investor base, in traditional financial structures, and the increasing effectiveness of continental European restructuring tools, particularly in France, Spain and Germany, all point to a new paradigm for future European restructurings.

Professor Louise Gullifer, Oxford University, then spoke on the complex issues of "Problems of Mutuality in Insolvency Set off", bringing clarity to the knotty question of whether set- off in insolvency is automatic if one of the "mutual" claims is secured. Louise took delegates through the arguments for and against the application of insolvency set- off where the claim against the insolvent party is secured, and the practical effects in the insolvency of set-off applying or not. Louise also considered the issue of mutuality in set-off where the debt owed to the insolvent party or the solvent counterparty is subject to security granted by that party, and, in a tour de force given that her session was a mere 30 minutes, also managed to include a discussion of mutuality in the context of charge backs, particularly crucial where it is the bank which is insolvent.

Our first afternoon session was presented by this year's winner of the ILA's Academic Forum prize, David Ehmke, (Humboldt University, Berlin and Oxford University), who drew on his current doctoral thesis , with particular reference to the UK market, to analyse the respective benefits of consensual restructurings of bond issues over formal processes, particularly against a background of a fragmented body of creditors and secondary trading which characterises that market, and to consider the practical implications for the structuring and drafting of bond terms going forward. Can the private, consensual , approach to the restructuring of bonds gain the edge over formal collective procedures, particularly in terms of encouraging an early getting round the table, encouraging transparency and preserving or enhancing asset values?

Professor Jennifer Payne, Oxford University, and the Right Hon Mr Justice David Richards then shared the platform to give a presentation on current trends in schemes of arrangements for foreign companies. Jennifer took delegates through the line of cases, from Rodenstock to the recent decisions in Magyar Telecom and Zlomrex, which have considered the issue of whether the scheme proposed by the foreign entity has a "sufficient connection" with the English court's jurisdiction, concluding that, despite criticisms from some quarters, schemes may be regarded as an example of "good" forum shopping and also expressing hope for further debate in the UK on the issue of whether schemes need to be supported by a statutory stay. Mr Justice David Richards noted that earlier in their 130 year history, English schemes had been widely used in cross-border situations, from US railroads to Australian mines, but the trend to again use schemes for restructuring creditors' claims has seen renewed prominence in the last 15 to 20 years. Mr Justice David Richards went on to consider the application of Chapters II and III of the Judgments Regulation to schemes, the issues which are relevant to answering the question, and the current state of the law as set out in Rodenstock, Primacom and Vietnam Shipbuilding.

Dr Michael Schillig of King's College London followed with a session on the evolving European proposals for a framework for the restructuring of credit institutions and for a single recovery mechanism and fund (enlightening delegates on the meaning of BBRD and SRM). Michael gave a broad overview of the proposed framework under the proposed directives from an insolvency law perspective, taking delegates through the proposed regulatory threshold trigger, the resolution process and its overlap with corporate insolvency law, concluding that the proposals have some positive aspects in terms of seeking to time intervention to prevent further deterioration and to ensure a quick and easy transfer of the business, but there remain issues to be considered, including how the proposed resolution process might sit with a political desire to bail out a distressed institution.

The day concluded with a panel discussion, comprising Felicity Toube QC, Reinhard Damman of Clifford Chance Paris, Professor Stephan Maddaus of the University of Regensburg and Angel Martin of KPMG Spain. The discussion was particularly timely given the publication on 12 March of the Commission recommendation on a new approach to business failure and insolvency, suggesting the harmonisation across member states of insolvency law in key areas. Each of the panel members gave a presentation on the current state of law in their home jurisdictions in the key areas of the conditions for the opening of insolvency proceedings, directors' duties and liabilities, and avoidance actions. By tradition, this last session is rather more light-hearted, and the speakers concluded in fine style, advocating for their own jurisdictions by contrasting the best and worst (or the less good) of their own rules with the best and worst of other panel members' jurisdictions. The outcome was judged on a show of hands by delegates, who - perhaps reflecting inherent biases - delivered a convincing win for the UK insolvency regime over our continental cousins.